It's All Politics

1:47 am

Wed September 5, 2012

Payroll Tax Holiday May Not Survive Year's End

The Social Security tax rate is scheduled to revert to 6.2 percent next year, up from the temporary reduction — to 4.2 percent on an employee's first $110,000 in wages — which has been in effect since January 2011.

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An occasional series, Fiscal Cliff Notes breaks down the looming "fiscal cliff" of expiring tax cuts and deep automatic spending cuts set to hit around the first of year.

If you work, you've probably been getting this tax break: Since January 2011, the government has knocked 2 percentage points off the payroll tax.

For someone making $50,000 a year, the payroll tax holiday works out to about $20 a week.

"We definitely notice it," says Steve Warner of Winter Haven, Fla., while on vacation with his family recently in the nation's capital.

"Most of what we use that for [is] just our day-to-day bills that we have. I mean, it's not like we put it away in savings or anything. It's just more money that we can actually use for gas, food and certain things like that."

That's exactly what Congress and the president had in mind when they created the holiday. But it ultimately didn't have the effect many economists had hoped for, because two years in a row, in the spring, gas prices spiked and ate up a lot of that extra spending money.

"It didn't really help support stronger growth, but it certainly helped the economy," says Mark Zandi, chief economist at Moody's Analytics. "Without it we'd be in a measurably worse place."

But even as the economy appears to still be in a rut, there's little appetite to extend the tax holiday — with its $95 billion price tag — one more time, says Zandi.

A year ago, Zandi was among those pushing for an extension. Now he says it's time to let it expire on Dec. 31. And unless something changes, it will.

Caitlin Morgan, a mother of four boys from Eugene, Ore., says for her family, the extra money was plowed into food and other living expenses. But she seems to accept that the holiday may well be over at the end of the year.

"[The] government needs to prop itself up," she says. "We need to get out of this debt. So you know, if we need to cut a few corners for that to happen, then that's OK. I'm OK with that."

Copyright 2013 National Public Radio. To see more, visit http://www.npr.org/.

Transcript

DAVID GREENE, HOST:

And it is time for our next installment in the series that we're calling Fiscal Cliff Notes.

(SOUNDBITE OF TV AND RADIO MONTAGE)

UNIDENTIFIED MAN #1: On January 1st, 2013, there's going to be a massive fiscal cliff of large spending cuts...

UNIDENTIFIED WOMAN: From the painful cuts to the Defense Department, food safety, education...

GREENE: The drama. It is the Bush-era tax cuts set to expire at the end of this year that get most of the attention from the media, but they are not the only tax breaks set to fall off the fiscal cliff. NPR's Tamara Keith has this look at what's known as the payroll tax holiday.

TAMARA KEITH, BYLINE: If you work, you've probably been getting this tax break. Since January 2011, the government has knocked two percentage points off the payroll tax. As an example, for someone making $50,000 a year, the payroll tax holiday works out to about $20 a week.

STEVE WARNER: We definitely notice it.

KEITH: Steve Warner lives in Winter Haven, Florida, and was on vacation with his family in Washington, D.C. recently.

WARNER: Most of what we use that for is just our day-to-day bills that we have. I mean, it's not like we put it away in savings or anything. It's just more money that we can actually use for gas, food and certain things like that.

KEITH: That's exactly what Congress and the president had in mind when they created the holiday. But it ultimately didn't have the effect many economists had hoped for, because two years in a row, in the spring, gas prices spiked and ate up a lot of that extra spending money. Mark Zandi is chief economist at Moody's Analytics.

MARK ZANDI: It didn't really help support stronger growth, but it certainly helped the economy. Without it, we'd be in a measurably worse place.

KEITH: And now, even as the economy appears to be in a rut, Zandi says there's little appetite to extend the tax holiday - with its $95 billion price tag - one more time. A year ago, Zandi was among those pushing for an extension. Now he says it's time to let it expire, and unless something changes, it will.

CAITLIN MORGAN: We'll miss it. Absolutely.

KEITH: That's Caitlin Morgan, a mother of four boys from Eugene, Oregon. For her family, the extra money was plowed into food and other living expenses. But she seems to accept that the holiday may well be over at the end of the year.

MORGAN: The government needs to prop itself up. It needs to get out of this debt. So, you know, if we need to cut a few corners for that to happen, I'm okay with that.

KEITH: It's one part of the fiscal cliff many economists think can be absorbed - that is, as long as the other 600 billion or so dollars in tax increases and spending cuts don't also hit at the same time. Tamara Keith, NPR News. Transcript provided by NPR, Copyright National Public Radio.